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Three other U.S. regulators have launched investigations into how Morgan Stanley’s wealth management division handles potentially risky clients, according to a person familiar with the matter.
The business, which has been central to the bank’s growth in recent years, was already in the Federal Reserve’s sights for money laundering controls. The Securities and Exchange Commission, the Office of the Comptroller of the Currency and the Treasury are now also involved, the person said.
Regulators are examining the depth of Morgan Stanley’s investigations into the source of clients’ wealth and their financial activity.
Morgan Stanley, OCC, SEC and Fed declined to comment. The Treasury did not immediately respond to a request for comment.
Shares of Morgan Stanley, which have risen sharply in recent years on the back of strong growth in its asset management division, fell 5.3% after The Wall Street Journal reported that the investigation had widened.
Growth in wealth management has been a central feature of James Gorman’s tenure as chief executive, with the business growing to more than $5 trillion in assets, aided by acquisitions of online trading platform ETrade and money manager Eaton Vance. Ted Pick, Morgan Stanley’s former head of investment banking and trading, succeeded Gorman as CEO earlier this year.
The Wall Street Journal reported that the SEC had raised concerns about the vetting of some current and former clients, including a billionaire with ties to Russia who has been sanctioned by the United Kingdom. The OCC also reportedly sent a letter to Morgan Stanley, signaling that additional attention was needed in client due diligence.
While wealth management has helped make Morgan Stanley a Wall Street darling, the division’s growth has slowed amid higher interest rates, giving clients the option of keeping their money in cash or low-cost products who still get a decent return. Morgan Stanley warned in January that the company would not reach its profitability target in the foreseeable future.
The investigations into its asset management division represent the latest regulatory scrutiny faced by Morgan Stanley following a long-running federal probe into its block trading business. The bank agreed in January to pay $249 million to settle the case examining whether the bank disclosed confidential information to customers.
Additional reporting by Claire Jones, Stephen Gandel and Stefania Palma